2014 (11) TMI 398

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... same incomes which were originally filed before the authorities in respective assessment years before the search. In the course of present proceedings, A.O. examined various issues and made disallowance of expenditure, disallowance of depreciation, addition of cash credits, disallowance of loss in trading. Further, A.O. also disallowed various purchases and also made additions to gross profit. Assessee contested various issues before Ld. CIT(A) who gave partial relief. Both Assessee and Revenue are accordingly aggrieved. The appeals are dealt with issue-wise. ADHOC DISALLOWANCE OF EXPENDITURE: 3. One major disallowance in all the impugned years made by A.O. from A.Y. 2002-03 to 2008-09 is 50% of disallowance of expenditure claimed in P & L account. A.O. asked for evidence of expenditure claimed in the books of accounts and he was of the opinion that assessee has not justified the expenditure and accordingly he made disallowance of 50% of the claim. Assessee contended the same before the Ld. CIT(A) and Ld. CIT(A) on examination of nature of expenses, was of the opinion that it is necessary to carry on the business and spend amounts. Considering the turnover and nature of expe....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....re at 50% as was done by A.O. cannot be sustained. Ld. CIT(A) should have deleted the whole thing but restricted it to 25%. In the absence of any justification for the same, we unable to sustain the orders of Ld. CIT(A). Therefore, while accepting the additional ground in assessment years 2002-03 to 2005-06, we are of the opinion that no disallowance can be made in those years as assessee has filed regular returns earlier and those were accepted. In fact, there was a scrutiny assessment for A.Y. 2004-05 in which assessee's books of accounts were accepted without any disallowance. Therefore, there is justification in assessee's additional ground and the grounds raised at disallowance of 25% of claim in these assessment years. Accordingly, assessee's grounds in A.Ys. 2002-03 to 2005-06 including additional ground are allowed. Consequently, Revenue grounds on deletion of 25% of gross expenditure in these assessment years become infructuous. Accordingly, the same are rejected. 7. Coming to the disallowance in A.Ys. 2006-07, 2007-08, 2008-09, it was admitted by Ld. Counsel that scrutiny was not done earlier as the returns were not due at the time of search. Since these are to be cons....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....hereon and likewise, he should have refered the matter to A.O. without sustaining the addition. It was submitted that necessary evidences are furnished, therefore, assessee is willing to furnish the creditworthiness of Mr. K. Panduranga Reddy so that the same cannot be treated as income of assessee. 8.2. Considering the submissions of assessee and perusing the orders of Ld. CIT(A), we are of the opinion that credit in the case of Mr. K. Panduranga Reddy who is an income tax assessee with PAN AOWPK1766P required re- examination. Therefore, partly accepting assessee's grounds, the matter is restored to the file of A.O. who should examine after giving due opportunity to assessee and decide the issue afresh. Accordingly, grounds raised by assessee in A.Y. 2008- 09 is considered as allowed for statistical purposes. 9. In A.Y. 2006-07 assessee has received credits of Rs. 1,50,000 from Mr. Bajaranglal Agarwal and Rs. 1,25,000 from Mr. A. Srinivasa Rao and there were no confirmations filed with reference to these two credits. 10. Ld. Counsel reiterated the submissions made before the authorities. Even though it was contended that credits are received through banking channels, in t....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....reason to interfere with the orders of Ld. CIT(A). There is no dispute with reference to the fact that assessee has entered into forward contract transactions as assessee is dealing with bullion market where the fluctuations are on a daily basis. Since Ld. CIT(A) examined the transactions and also gave a finding that these are forward contract transactions to care against loss through the price fluctuations, the same is eligible to be treated as business loss and is covered by the proviso to section 43(5). The Hon'ble Bombay High Court in the case of CIT vs. Ramchandra Shivnarain 201 ITR 862 (supra) has held as under : "From a bare reading of this sub-section it is clear that though a transaction in which a contract for the purchase or sale of a commodity is settled otherwise than by actual delivery or transfer of the commodity has been defined as speculative transaction, certain species of such transactions entered into under specific circumstances have been taken out of the definition by virtue of the three provisos thereto, the relevant proviso for our purpose being proviso (a). Proviso (a) clearly states that for the purposes of this clause a contract in respect of raw mater....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ctual delivery of merchandise sold by it. On a reference. Held, that, on the facts and in the circumstances of the case, the losses of Rs. 34,870 and Rs. 8,148 sustained by the assessee in the hessian hedge amount and the gunny hedge account represented business losses and not speculation losses." 12.1. In view of the above, we uphold the order of Ld. CIT(A) and reject the Revenue ground. ADDITION OF GROSS PROFIT 13. The next ground No.5 contended by Revenue in A.Y. 2007-08 and 2008-09 is on the deletion of gross profit addition made by A.O. The A.O. even though disallowed 50% of the expenditure and also made disallowance of various purchases made by assessee, still resorted to addition on account of gross profit on the reason that the gross profit shown by assessee is less. Ld. CIT(A) examined this ground and gave relief to assessee by considering as under in para-9 of his order as under : "9. The fifth common effective ground of appeal for the assessment years 2007-08 and 2008-09 to addition on account of estimation of gross profit at 0.19%. The only finding given by the A.O. for making this addition is that the gross profit percentage in these two years is too low....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....TS : 15. The last issue for consideration in these appeals is the additional ground No.2 raised by assessee in A.Ys. 2006- 07, 2007-08 and 2008-09. Assessee has raised following additional ground : "The A.O. is not justified in not giving credit for seized cash as requested in the computation of total incomes and consequently charging of interest u/s.234B is not justified." 16. In the above three assessment years 2006-07 to 2008-09 in view of various incomes offered and additions made, interest under section 234A and 234B were levied. Assessee has not raised any ground before the authorities but raised additional ground before ITAT stating that during search, an amount of Rs. 1.10 crores was seized from assessee's premises. It was submitted that assessee has requested the A.O. to adjust the seized amounts towards various tax payment for A.Y. 2006-07 to 2008-09. However, A.O. adjusted the amount after completing the assessments. Since assessee has requested for adjustment of the seized amount, A.O. should have adjusted the seized cash towards / self assessment/ advance tax and interest under section 234A and 234B should have been re-worked out accordingly. Reliance is place....